Episode #60: Manufacturing and American Independence: From Mercantilism to the American System
In this episode, Matt Horine points out that manufacturing was central to American independence and remains vital as the U.S. approaches its 250th anniversary. It traces how Britain’s mercantilist policies and acts like the Iron Act (1750) and Wool Act suppressed colonial manufacturing, leaving the Continental Army dangerously dependent on foreign supplies, including gunpowder and basic clothing at Valley Forge. It highlights Ben Franklin’s maker-centered economic philosophy, then explains how the founders enacted the Tariff Act of 1789 to support government, pay debts, and protect manufacturers. Alexander Hamilton’s 1791 Report on Manufactures framed industrial policy as national security and endorsed protective tariffs for “infant industries.” Henry Clay’s 1824 American System integrated tariffs, a national bank, and internal improvements, later advanced by Lincoln; the episode contrasts this history with post-1913 shifts toward income tax and lower tariffs and links offshoring and supply-chain vulnerabilities to renewed reindustrialization debates in 2026.
Links
- Veryable Is Revitalizing U.S. Manufacturing
- Navigating Trump 2.0
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Timestamps
- 00:00 America 250 Blueprint
- 01:17 Mercantilism and Suppression
- 01:57 Revolution Supply Crisis
- 03:15 Franklin Maker Ethos
- 05:02 Tariff Act 1789
- 05:43 Hamilton Infant Industry
- 07:50 Clay American System
- 10:10 Lincoln and Industrial Rise
- 10:44 Income Tax Tradeoff
- 11:45 Reindustrialization Lessons
- 12:39 Workforce Is the Engine
- 12:59 Closing and Resources
Episode Transcript
Matt Horine: [00:00:00] Welcome to US Manufacturing Today, the podcast powered by Veryable, where we talk with the leaders, innovators, and change makers, shaping the future of American industry, along with providing regular updates on the state of manufacturing, the changing landscape policies and more.
In preparation for America two fifty, now would be a great time to tie together themes we're seeing in the market in the twenty-first century but are not entirely new. There's a lot to celebrate coming up this Independence Day, but what we talk about less, often a lot less, is what caused much of the strife in the seventeen hundreds and how manufacturing was central to that movement for independence.
The founders did not just build a government or write a constitution, but they built the framework for an economy, a deliberate, intentional, carefully designed economic system built around one core conviction, that a nation which cannot make what it needs cannot defend itself, its citizens, or ensure its survival.
They learned that lesson the hard way, and when the shooting stopped, they made sure no one would have to learn it again. So in honor of America's two hundred and fiftieth birthday, we're [00:01:00] going back to the beginning, to the founders, the documents, the arguments, and the policy decisions that laid the foundation for the greatest manufacturing economy in the history of the world.
This is not a nostalgic episode. It's a blueprint episode. The people who built this country understood something that we are now, in twenty twenty-six, being forced to remember. So let's start before the revolution because to understand what the founders built, you have to know what they were reacting to.
Britain's mercantilist system was not subtle. The colonies existed in the eyes of Parliament to supply raw materials and to purchase finished goods. That was the deal. Raw materials out, manufactured products in, and the economic value of the transformation stayed in Britain. To enforce that deal, Parliament passed a series of acts that systemically suppressed American manufacturing.
The Iron Act of seventeen fifty banned colonists from building new iron and steel mills. The Wool Act barred them from developing their own textile trade. And these acts were not just nuisances, they were deliberate economic chains. And then the war started, and those chains nearly cost the [00:02:00] colonies everything.
The Continental Army didn't almost lose the revolution on the battlefield. It almost lost it in a supply chain it did not have control of. Britain had banned the manufacture of artillery in America, declaring it both illegal and disloyal to cast guns. The colonists had allowed their powder mills to decay.
It had simply been cheaper and easier to import gunpowder from Britain than to make it at home. And when war came, that calculation almost ended the revolution before it began. On Christmas Day seventeen seventy-five, George Washington wrote to his military secretary, "Our want of powder is inconceivable."
His troops around Boston were issued spears to defend their lines. Around ninety percent of the gunpowder used in the first years of the revolution came from overseas, mainly French colonies in the West Indies. Had that supply chain been cut off, the revolutionary cause likely would have collapsed At Valley Forge in December of 1777, Washington put the reality in a letter to Congress.
He said, quote, "We have by a field return this day made no less than [00:03:00] 2,800 men now in camp unfit for duty because they are barefoot." Nearly a quarter of his army was unfit for duty, not from British bullets, from the absence of shoes and clothes. That is what economic dependency looks like when the pressure is on, and the Founders never forgot it.
Before Hamilton wrote the policy and Clay built the system, which we'll talk about in just a little bit, there was a cultural foundation that made it all possible, and no one embodied that foundation more than Ben Franklin. Franklin identified himself first and always as a printer. Before he identified as a statesman or a diplomat or an inventor, he was a maker.
He built his fortune with his hands and his press before he ever set foot in a legislature, and the economic philosophy he carried into the founding era grew directly from that experience, that a nation's true wealth comes not from clever trading, but from what its people can produce. In 1769, Franklin wrote an essay called Positions to Be Examined He argued that fair commerce is where equal values are exchanged for equal, [00:04:00] but that manufacturers are only another shape into which the produce of the earth is converted, carrying the real labor of workers within them.
When trade became extraction, when one party's knowledge exploited another's ignorance, Franklin called it what it was, commerce which is generally cheating. His sixth virtue, industry, wasn't about being busy. He wrote, "Lose no time, be always employed in something useful, and cut off all unnecessary actions."
The word useful mattered a lot to Franklin before he ever mentioned being profitable or being productive. The idea of being useful or making work that creates something real and tangible in the world. The Way to Wealth, his most widely distributed text, appearing in over a thousand editions across twenty-six languages, helped canonize the basic ingredients of American capitalism.
A strong work ethic, industry, and frugality. The dignity of making things, the conviction that a people's strength lies in what they build with their own hands. That conviction was the cultural [00:05:00] soil of which Hamilton was about to plant the policy. The first major thing that Congress did after the enactment of the constitutional system on July 4th, 1789, was to pass a tariff.
The date was not a coincidence. Thirteen years to the day after the Declaration of Independence, the founders put their economic philosophy into law. The Tariff Act of 1789 declared in plain language that duties on imported goods were necessary for, and I'm quoting directly, "The support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufacturers."
Encouragement and protection, those words were chosen deliberately by men who had just watched Britain use trade policy as a weapon against them for decades. But Hamilton wasn't done. In December 1791, he delivered his report on the subject of manufacturers to Congress. It remains one of the most consequential economic documents in American history, and one of the most under-read.
He opened with a statement of purpose that left nothing to interpretation. The entire [00:06:00] report, he wrote, was dedicated to promoting manufacturers that would, quote, "render the United States independent on foreign nations for military and other essential supplies." This was not abstract economic theory. It was national security doctrine drawn directly from the lessons of Valley Forge and the gunpowder crisis in the 1770s.
Hamilton's central argument cut through the free trade orthodoxy of the day with precision. He wrote, "To maintain between the recent establishments of one country and the long matured establishments of another country a competition upon equal terms, both as to quality and price, is in most cases impractical.
The disparity must necessarily be so considerable as to forbid a successful rivalship without the extraordinary aid and protection of government." In plain terms, you cannot ask a newborn American industry to compete on equal footing with European powers that had a century's head start and were backed by their own foreign government subsidies.
The playing field was not level, and pretending otherwise [00:07:00] wasn't just principle, it was being naive, and some might say today, not reciprocal. His tool of choice was the protective tariff. He wrote, "Duties on these foreign articles which are rivals of the domestic ones evidently amount to a virtual bounty on the domestic fabrics, since by enhancing the charges on foreign articles, they enable national manufacturers to undersell all their foreign competitors."
It was one policy instrument, but it had two effects: revenue for the republic and protection for American industry while it found its footing. This became known as the infant industry argument, and it became the intellectual foundation for American industrial policy for the next century. Congress didn't immediately adopt the report on manufacturers.
Jefferson and Madison blocked it, fearing the agrarian soul of the Republic. But Hamilton's vision proved impossible to contain. His ideas were about to find the man who would turn them into a system. If Hamilton wrote the blueprint, Henry Clay built the house. By the time Clay rose to address Congress in March of 1824, the debate over American economic [00:08:00] identity had been running for thirty years.
The Revolution had nearly been lost for want of gunpowder. Valley Forge had nearly broken the army for want of shoes and clothing. Hamilton had laid out the intellectual case, but the Republic still had no integrated strategy to tie it all together. After the War of 1812, the threat shifted form, but it didn't diminish.
British merchants began deliberately dumping surplus manufactured goods into American markets at prices that undercut domestic producers. There was open talk in the British Parliament of, and this is a documented historical fact, flooding American markets to destroy the factories that had grown up during the war.
The infant industries Hamilton had envisioned were being directly targeted. Sounds like something from the modern age. Clay's response was the most ambitious economic program the young republic had yet seen. He called it simply the American System. Standing before the House in March of 1824, he asked, "Are we doomed to behold our industry languish and decay yet more and more?
But there is a remedy, and [00:09:00] that remedy consists in modifying our foreign policy and adopting a genuine American system. We must naturalize the arts in our country, and we must naturalize them by the only means which the wisdom of nations has yet discovered to be effectual, by adequate protection against the otherwise overwhelming influence of foreigners."
The American System had three integrated pillars: protective tariffs to shield American manufacturers from foreign competition, a national bank to stabilize the currency and finance growth, and federal investment in roads and canals, what Clay called internal improvements, to connect the home market so that farmers could ship crops, manufacturers could reach new customers, and the nation's regions could depend on each other instead of foreign trade.
Clay was explicit about the tariff's purpose. He said, "The sole object of the tariff is to tax the produce of foreign industry with the view of promoting American industry." There was no apology in that or hedging. A nation had the right and the duty to protect what it was building. Clay never won the presidency.
He ran three times and lost each [00:10:00] time, but his ideas outlasted every one of his defeats. And because one of his most devoted admirers was a young Illinois lawyer who had grown up reading Clay's speeches, many of them took effect. As the Civil War raged, Lincoln pursued an American System agenda on an epic scale.
He raised tariffs twice in the course of three years, and from Lincoln's presidency through World War II, the American home market was the most protected in the world. The result was that by 1900, the United States had become the largest industrial economy on Earth, not despite protection, but because of it.
Here's the thing I want to sit with as we approach America's 250th birthday. The tariff was not invented in 2025. It was not a blunt instrument deployed in anger or a lever pulled in desperation. It was the considered deliberate policy of the republic's greatest architects, from Hamilton's report in 1791 to Clay's speech in 1824 to Lincoln's wartime economy in the 1860s, sustained for over a century because it worked [00:11:00] For the first one hundred and twenty-four years of the Republic, there was no income tax.
The federal government was funded almost entirely by tariffs, duties collected at the ports on goods coming into the country. The founders considered direct taxation dangerous. They had just fought a revolution over it, so they built a system around what crossed the border, not what citizens earned. It took a constitutional amendment, the sixteenth ratified in nineteen thirteen, to make income taxation permanent, and it was passed in the same session that dramatically lowered tariff rates.
The tariff went down and the income tax went up and has continued to go up. A constitutional architecture that had stood for one hundred and twenty-four years was quietly dismantled in a single legislative session. Whether that trade served America well is a debate for another day. But what happened over the decades that followed that bargain, the offshoring of manufacturing, the hollowing of industry and their communities, the supply chain vulnerabilities exposed by a pandemic and other global conflicts suggest that the founders instincts were not [00:12:00] incorrect.
A people who cannot make their own cloth, forge their own iron, or produce their own gunpowder are not truly free. That was Washington's lessons at Valley Forge, and it was Hamilton's argument in the report on manufacturers. Henry Clay made the case on the House floor in eighteen twenty-four, and it is the argument that the reindustrialization conversation of twenty twenty-six is being forced slowly and often reluctantly to revisit.
We built the greatest manufacturing economy in the history of the world on purpose, with intention and with policy, with the conviction that self-sufficiency was not a relic of an agrarian past, but the foundation of a sovereign future. Two hundred and fifty years later, that conviction is the most American thing there is.
The people who built this country understood something that every manufacturer listening to this show already knows. Nothing gets built without people, without operators, without a workforce that shows up and makes things. Hamilton understood it, Clay understood it, Lincoln understood it. And the workforce is not an expense line.
It is the engine. Being a manufacturer and builder is rooted in our founding. [00:13:00] So thank you for what you do and for spending part of America's two hundred and fiftieth celebration lead up with us. The history is remarkable, and it's truly an exceptional one.
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